RBI’S INR 1.76 Lakh Crore Defibrillation to The Indian Economy

Following Nirmala Sitharaman’s prescribed economic booster shot late last Friday, RBI decided to inject the Government coffers with a heavy dosage of surplus reserves of INR 1.76 lakh crore late evening yesterday.

This slew of economy-reinvigorating measures by the GoI and RBI’s large-hearted contribution comes amid a time when India is surrounded by a global, synchronized slowdown. This time, with global pressure mounting and the Indian economy staring at a downside risk of 30bps-40bps, RBI loosened its grip on fiscal prudence and seems to have acknowledged stimulus as the need of the hour.

The Bimal Jalan committee was set up under the stewardship of the renowned former RBI governor Bimal Jalan with an objective to recommend ways to utilize RBI’s excess cash reserve and part transfer to the Government of India. Though RBI has been among the most resilient Central Banks globally in terms of deviating from the established norms for fiscal prudence, the committee’s recommendations were reportedly guided by the fact that the central bank’s resilience should be in line with larger public policy objectives.

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No makhan-chori this Janmashtami!

O’ naughty Krishna, stealing butter sure was fun,
With friends supporting, it was a pretty good run

 

But Mommy waited around the corner with a loving whack,
And then, came a time when all had to be given back

Just a day before Indians celebrated the birth of the natkhat & loving Lord Krishna, the Finance Ministry presented Indians with more than one reason to celebrate the day with even more enthusiasm.

The biggest announcement making headlines is the withdrawal of recently proposed colossal surcharge rates applicable on investments in equity/equity-oriented schemes. The proposed surcharge took tax burden up to as high as an effective 42.7% which was obviously received with an equally massive backlash by foreign portfolio investors by way of heavy-duty offloading of Indian equities.

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You’re probably being the ‘bazaar’ fool!

Some said incoming was abundant rain,
Ol’ John bought a farm & sowed to gain.

Some said they knew it would snow,
Ol’ John bought firewood that’d glow.

Some said the horizon seemed sunny,
Ol’ John bought hats to make some money.

Alas! The visitor was spring and breeze so cool,
Markets rejoiced, while Ol’ John remained the ‘bazaar fool’

Ol’ John was simply trying to play every story that the market fed him but unfortunately landed up being the ‘bazaar fool’ as he lost everything to the chaos. This is something similar that has been happening with many investors, especially with the novices.

If you’ve been reading too many pink newspapers lately, you would have probably convinced yourself to believe that it’s almost game over for global and Indian equities.

But, is it so? Or are you simply being played & made the ‘bazaar fool’?

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This time, “action” begins after the “cut”

The world’s hogging on rate cuts,
Driving investors across the world nuts.
We all want cheaper loans and growth,
But is this the only way to get both?

You must have already heard about the 35-bps rate cut by the RBI in its monetary policy meeting, but here’s something you would have missed – India was not the only to surprise with a deeper-than-expected rate cut. The Reserve Bank of New Zealand caught the market off-guard with a rate cut of 50 bps (which is twice the expected cut) bringing its official cash rate to an all-time low of 1% while Bank of Thailand cut its rate by 25 bps for the first time since 2015. This has happened only in the next couple of days following a rate-cut announcement by the U.S. Federal Reserve.

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Understanding Defined Benefit Plan

Health insurance covers your unfortunate medical expenses. Your hard-earned money can be utilized for better. The cover you buy also includes pre and post hospitalization expenses and other benefits. On the other hand, defined benefit plans policy work the same.
Defined benefit plans are the type of health insurance plan where a predefined payment will be made to the policyholder on the occurrence of predefined events irrespective of how much expenses have been incurred as hospitalization expenses. Thus, the sum assured is not dependent on your hospitalization expenses — no need to furnish hospital bills or any other bills to claim the benefit.
Under the defined benefit plan, we have

  1. Critical illness plan
  2. Hospital Daily cash plan
  3. Any other health insurance plan which makes pre-defined payments to the policyholder on the occurrence of a pre-defined event irrespective of whether and how much expense has been incurred on treatment.

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mid and small cap

There’s more to your mid/small-cap portfolio than you can see

We all know a kid who remained at the bottom of the class long enough for people to lose all faith in his progress only to be surprised when he lands a great opportunity and is perhaps more successful in life than most peers.

Even in Indian equities, many in the small/mid-cap space are assumed to be underdogs till one fine day when an opportunity comes knocking and it hits one out of the park. True, one cannot simply generalise all small/mid-cap stocks to be underrated, but the ones that offer a massive wealth-creation opportunity along with business turnaround.

While Indian capital markets, along with other emerging nations, witnessed a difficult phase last year, bellwether index Nifty still managed to climb to an all-time high last month but the small-caps at the bottom of the market-cap was unable to keep pace. At the time of writing this NIFTY50 has delivered a one-year return of ~3% but the NIFTY Smallcap 100 recorded a steep -16% decline and NIFTY midcap 50 slumped by almost 7% for the same period. The valuation polarization is too sharp. We look at mid and small-caps creating new bottoms and the basket dragging quite a few high-quality stocks along – this pushes them into the undervalued zone.

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donald-trump-shinzo-abe-narendra-modi

SEBI turns hero for investors, Trump three-way fist bumps with Shinzo and Modi and more

Monsoon seems to have brought along cheer on many fronts – right from pleasant weather to pleasant news for investors. Here’s what you must know to reassure yourself that your investments are headed in the right direction.

SEBI wears the cape to save investors once again

While Indian investors have only recently realised the ugly side of credit risk, SEBI has stepped in to ensure that investors are protected. SEBI’s recent circular tightens regulations for mutual funds, especially for the debt funds to offer insulation against the increasing probability of further markdowns on already sub-rated instruments.

Here are the most notable measures that will augur well for mutual fund investors.

1. A liquid fund should hold a minimum of 20% assets in cash, gilts

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Make your money work for you

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It is good to have Mutual Funds in your portfolio. Mutual funds will help the investors to build wealth with a small amount of money with the help of earning good returns. Before you make investments in any investment option you have to decode the cost. Cost doesn’t really matter in the fixed return products like FDs. The bank will rate your deposits after considering the cost and profits.
Bonds and traditional plans too work on the same logic. You need to consider certain factors such as the rate of interest, final payback, and current inflation rates. You need to think about cost in a market-linked product where the returns are linked to market conditions.

Market-Linked products carry 3 kinds of cost.

  1. Entry cost
  2. Ongoing cost
  3. Exit cost

Entry cost:

It is the cost to enter the product, also called “Front Load”. If you invest Rs 100, Rs 2 is cut-out so that Rs 98 is invested, the Rs 2 is called “front load”. A loan is a part of the price of the product which is invisible not usually disclosed.

Ongoing cost:

This is the annual fee that you need to pay to have experts to manage your money. This is also called as “Expense Ratio”. This is the fee charged by the company to manage the funds of the investors. The expense ratio depends on the amount of money you invest in the product. The market regulator “SEBI” has put a ceiling on charges.

  • Liquid funds- 14 paise to Rs. 10/- for every Rs 100/-.
  • Debt funds- 25 paise to Rs. 1.5/- for every Rs 100/-.
  • Equity funds- ranges between Rs. 2/- or Rs 3/-.

These numbers may look small but it forms huge amounts over the years. The fund with a lower expense ratio will get you a net return of 14.5 to 16% and the higher expense ratio will give you 13 to 15%.

Exit cost:

Third, an exit cost- it is the cost of selling the product. Funds will levy exit charges. This is a percentage of your corpus. The fund manager takes care of the cost of exit. Debt funds have zero exit cost and equity funds have an exit cost of 1% if you leave even before one year.
Always think on the cost that incurs to redeem your product after one, two and three years.

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Thus, the best way to evaluate a fund is by digging a bit deeper into the fees and also looking at the turnover ratio prior to investing. One can also invest in Mutual Funds and build wealth with Zero Fees and Zero Commission. Yes! That’s right. With MyWay Wealth, you can invest in Direct Plan Mutual Funds and start your journey to fulfill your financial goals. Remember! The probability of a successful portfolio increases dramatically when you do your piece of homework.

Invest in MyWay Wealth to make your money work for you!

Active vs Passive Funds

Passive funds or active funds

In Equity funds, we have different kinds, Active and Passive funds are one among them. Generally to brief on these funds:

“Passive funds: A lazy man’s strategy to earn money
Active funds: weathered the storm to earn money.”

Before having these two in your portfolio, let’s understand the concept.

Active Funds:

Active funds usually incur high cost because investors pool money and hand it over to a fund manager whose job is to select investments based on scientific research, intuitions and his experience. The investors take risk of investing in these funds because the outcome will be more effective.

Passive Funds:

It eliminates humanly ideas in predicting market moves. Passive investing means owning the market rather than trying to beat the market. It sounds uninteresting, but it is a desirable investing.
There is no difference between passive funds and index funds. All the index funds form the part of passive investing.

Beating or matching the market?

Passive investors consider that beating the part is impossible whereas, on the contrary, active investors believe that they can beat the market by selecting the good stocks. But with an aim to overcome the market and beat the benchmark, the fund managers end up substantially raising the cost of buying and selling the stocks.
The idea behind passive investing is to take advantage of market moves and compensate for the risk with the returns.
Don’t look at investing as a medium to make more money in a short span. The successful investors are those who invest for the longer term and understand that the returns are compounded over a period of time along with risk. This is the strategy used by investors to build the money.

Balanced funds:

The fund manager will always try to handle the asset allocation to safe the fund of the investors. And balanced funds are new kinds of funds launched and gaining huge popularity. Let’s understand the balanced funds in deep. There are 3 kinds of balanced funds-

  1. Conservative Funds.
  2. Balanced Funds.
  3. Aggressive funds.

Conservative funds have 10-25% in Equity, balanced have 40-50% in Equities, aggressive funds have 65-80% in Equities.

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Balanced funds are marketed as “Monthly Income Plans”. MIPs don’t offer any assured incomes, these are just the combination of debt funds with a small unit of equities that offer slightly higher returns than the pure debt funds.
Start investing in MyWay Wealth– to see the fractions on your gains.

“Don’t gamble- take all your savings and buy some stocks, hold it till it goes up, then sell it. If it doesn’t go up, don’t buy it”

– Will Rogers

A Range of Debt Funds

Debt-funds

The categorization of debt funds is simpler than the Equity Funds. Debt funds are the debt papers/ bonds issued either by the government or the firms or both. When a company needs money for both short term and long term purpose, they have the option of issuing the bonds. A bond will pay regular interest to the lenders, and then at maturity, it will repay principal- same as FD’s. There is a wide range of debt products available in the market with different maturity periods. Long term bonds are generally issued by the governments and short term bonds are issued both by the companies and the governments.

Don’t buy the bond directly from the company.

Generally, the bond that we buy from companies is “company deposits”. We shouldn’t buy because as an individual, it will be difficult for us to analyze the moves of the company and we buy bonds from 2 or 3 companies and in the mutual fund, we will have a bond of at least 25 to 30 companies.

Even if one out of three bonds performs badly, the entire profit will be affected and this will not happen when we hold bonds in mutual funds, any hit on one bond will be a fraction. This is what we called diversification of funds- we reduce the risk by increasing the number of products in our portfolio.

Always remember the bond which we are planning to buy should always match up with the time horizon because we make investments to meet the future needs. We will buy short term bonds if need our money in the near term and vice versa.

Alternative: Debt Mutual Funds

Debt Mutual Funds are those funds where the investments are made in debt or fixed income securities such as government securities, corporate bonds, and money market instruments. Investors who can invest in these funds are those who are risk averse and want to maintain stability in their asset portfolio. And these Debt funds come up with tax deductions and are highly liquid. They are “Safe investment instrument”

Types of Debt Funds:

We can classify the debt funds based on time and returns. Firstly, we should decide upon the holding period of the bond and then the returns that we are expecting. There are plenty of debt funds available in the market, before buying, use the logic and look for the products that satisfy your needs.

We can see the ups and downs in the value of the bonds. When there is a fall in the interest rates, the older bonds that are locked for higher rates will have more value and vice versa. So, what’s more, important is the “Residual Time”- the time left until the date of redemption.

Why is “Residual time” is important?

When interest rate falls the older high-rates bonds will have more value. And also, one which has 10 years left for maturity will have more value than the one which has a maturity of 1 year because we will be getting paid the higher returns for the next 10 years. Thus, Residual maturity determines the risk and return of the bonds.

  • Liquid funds:

Investment in debt and money market instruments ( treasury bills, call money, and government securities) with maturity up to 91 days only. These funds are highly liquid and the offers a low return and risk associated with these funds are very less.

  • Overnight funds:

Investors who are risk-averse can buy overnight funds because these are not subjected to high market fluctuations and a period of maturity is only one day.

  • Ultra-short-duration funds:

These come up with the maturity of not more than one year. These are suitable for investors who are ready to take up a marginal risk to have high returns.

  • Short term funds:

Investments are made in these funds for not less than one year and more than 5 years and it best suits the investors who are ready to take moderate risk.

  • Dynamic funds:

These are the funds with a variety class of bonds with different maturity levels. They are dynamic because the portfolio which includes these funds varies dynamically with the changing interest rates.

  • Durational funds:

Funds are classified based on durations.

Bonds  Duration 
Low term 6-8 months
Short term 1-3 years
Medium term  3-4 years
Medium to Long term 4-7 years
Long term More than 7 years 
  • Income funds:

Investments in securities with an average maturity period of more than 4.5 years.they are highly vulnerable to the change in interest rates. These are suitable to the investors who are ready to take high risk and willing to have investments of the longer term.

  • Corporate bond funds:

These are high rated bonds where 80% of the corpus will be invested in corporate bonds.

  • Credit risk funds:

Here, a minimum of 65% is invested in corporate bonds. The returns earned from these are tax exempted. However, the returns earned within 3 years are taxable (short term capital gain).

  • Gilt funds:

80% of the investments will be made in government securities. “Guilt” is the securities which are issued by the government. they provide a considerable return and are not subject to market fluctuations.

  • Floaters funds:

These bonds will have floating interest rates. The investors will earn when the interest rate goes down and the price of bonds moves up.
Now that you have a fair idea about Debt Funds, take some time and evaluate your needs and financial goals, choose and match the right fund that would serve your investment purpose and yield suitable returns.

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